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New federal rule bans noncompete agreements for most employees

On Behalf of | May 1, 2024 | Employment Law |

Employment contracts generally need to include balanced terms to be considered enforceable legal documents. A company has to offer something of appropriate value to justify seeking concessions from a worker who accepts new roles with the organization.

That being said, is quite common for employment contracts to heavily favor the business rather than the individual worker. Employees often negotiate for certain terms, like eligibility for bonuses, increases in base salary and other benefits when accepting new positions. In return for offering employment, companies often require that workers make numerous concessions in addition to performing specific job functions.

Restrictive covenants have long been tools used by businesses to prevent employees from unfairly competing with an employer by taking a job with another company in the same industry or starting a business of their own. A new final rule recently adopted by the Federal Trade Commission (FTC) theoretically banned noncompete agreements for employees, freeing those with ideas to follow their dreams.

What is the new rule?

The FTC announced the possibility of a ban on non-compete clauses more than a year ago and gave time for the public to offer feedback. After receiving tons of thousands of comments, the FTC eventually reviewed public feedback and voted to ban employment noncompete agreements at the federal level.

The FTC claims that the noncompete ban could lead to the creation of thousands of new businesses every year and may help workers increase their earning potential by allowing for more employment mobility. Other organizations have threatened to take legal action over the ban, but the policy could still have a profound effect on the economy in the meantime.

Currently, noncompete agreements are unenforceable. That applies not just to new contracts signed after the day that the FTC enacted the rule but also applies retroactively to existing noncompete agreements. In certain scenarios, such as partnership buyouts, noncompete agreements might still be valid restrictive covenants to include in contracts. For the average employee, this new rule means that their noncompete agreement may not be enforceable if they follow their entrepreneurial dreams.

Understanding the implications of restrictive covenants can benefit employees who want to move on to something bigger and better in their careers. Those who understand changes in policy may feel more confident about taking assertive action whenever necessary.